The next recession cannot be avoided and it is not far away

[SGOS]

Hmm, not really. The negative interest would be charged to your savings, not your loan on which you are already paying interest rates (negative for you). It means that you would most likely spend the money rather than leave it in your saving account where a negative interest is like a tax or a fee that you are paying to the bank. If people then spend more rather than leave the money in the bank, that will spur on economic activities. Demand goes up, firms start to hire or rehire, unemployment rate goes down, recession is averted or at least slowed down. Of course if you go down into the details, it's the Fed that would charge the negative interest to the bank on the money it has on reserve. The bank would then charge you, its customer, at a higher negative interest rate. Of course, you could beat the system by stashing your money under your mattress, but such inclination would see a rise in the crime rate as many would be tempted by the prospect of making a career as a home invader...;-)

My goodness.  I don't like that idea at all.

[josephpalazzo]

My goodness.  I don't like that idea at all.

Me neither.

So far, besides Japan, you have Switzerland, Sweden and Denmark that are experimenting with a negative interest rate strategy. Janet Yellen has recently put a floating balloon out there that the US could also introduce it if the economy took a serious downturn. How serious is she no one knows. The US economy grew by 2.4% in 2015, not great but still positive. Though consumer spending has been less than expected, the economic indicator that's holding strongly is the unemployment at 5%. Expansionary deficit budget is at $18 trillions, no place to go, QE has been used too many times, and tax cuts have left government with just bare bones. The FED will be using negative interest rate as a measure of a last resort, I hope not, but I do see it coming, unfortunately.

[Baruch]

At that point, negative interest rates, the economy will implode ... matter meets anti-matter.  The yen and dollar are not the same, the dollar is the standard.  Actuarial accounting (accounts payable/receivable) are based on low but positive interest.  Even a bastard like Milton Friedman knew that.  Because it would be a faster death, I would prefer that Obama declare himself Communist Dictator ... and simply cancel the election.  That will protect us from Trump or Hillary, with something worse.  100% taxation of all checking and savings accounts, eminent domain against all stocks, bonds and real estate.  Fema camps for the docile Quislings.  Just like the prior experiments in Cyprus and Greece.

But seriously, even in Switzerland, do you think anyone will apply negative interest on Saudi accounts, or on the plutocratic money in the Caymans?  It will be for you and me ... not for the well connected.  If they did this to the rich and powerful ... all of Congress would be put into a limousine in Dealy Plaza asap.  The law and taxes is only for peasants ... not for the Elite.  The Queen and the Vatican and the Rothschilds ... won't tolerate this ... all their money will be in Elon Musk's Martian bank ... thankfully outside Earth's jurisdiction.  Silly rabbit, survival is for plutocrats, not rabbits!

Actual negative interest rates are discussed by those countries, not on the Euro, who depend on trade with the EU.  There is no reason for it here.  If the EU/Euro goes belly up, the state of currency in Switzerland, Denmark, Norway, Sweden ... will be the least of their problems.

The US could adopt negative rates, to encourage all Americans to put their savings in China, in renminbi.  Thanks again, Darth Kissinger!  Deflation of the insane Chinese economy, must be stopped at all costs.  If the renminbi goes down, then the dollar has to drop at the same ratio.  Negative interest rates on dollar deposits would do that.  And not just on American accounts, but ultimately thru money flow, on dollar accounts everywhere.

[Jason Harvestdancer]

Desperate times means desperate measures. As the economy weakens (read: deflation), measures to be taken in order to reverse the downward trend in the economy are:

Deflation is to a weakening economy as fever is to an infection - fevers are the body's way of defeating an infection by cooking out the bacteria.  Fever is a symptom of a cold, but it is an effect and not a cause.

[Baruch]

Deflation is to a weakening economy as fever is to an infection - fevers are the body's way of defeating an infection by cooking out the bacteria.  Fever is a symptom of a cold, but it is an effect and not a cause.

In economics, people ignore the elephant in the room (politics).  Why is it that in Europe that have 25% to 50% unemployment for young men 20-30 years old?  Because of some simultaneous equation?  And you are right on ... people often confuse cause and effect.  Politicians can't let the economy move on its own ... because they would lose their jobs.  So to protect grifters, the society as a whole must burn to the ground.  Mostly now though, it is necessary to backstop foolish investments by the Elite ... they must not be punished by the market ... just like Bush & Cheney must not be sent to the Hague.

[josephpalazzo]

Deflation is to a weakening economy as fever is to an infection - fevers are the body's way of defeating an infection by cooking out the bacteria.  Fever is a symptom of a cold, but it is an effect and not a cause.

Well in a way you are alluding to the cause, and to remedy that, you need to go to the elephant in the room, which politics, and that would not please you, and many others. It would require two things:

(1) A fascist, authoritarian government.
(2) That government would be in possession of the perfect economic solution.

Problem with (1) is that people love their freedom. If anything, they want more, not less freedom.

Problem with (2) is that there is no such thing as a perfect theory that would deliver the perfect solution. The theory we have now is better than in Adam Smith's times, better than in Keynes' times, but it is still a work in progress. People in the know, economists, have taken 4 years of studies in universities, passing the courses, doing the assignments, succeeding in their exams. Then another minimum of 3 years in graduate schools, writing a thesis and defending it before peers, who can be very fussy and critical. Then they move on to universities, think tank institutions or government agencies, where they mingled with other economists, discussing exchanging ideas on a level not experienced by most folks. Now, if they can't solve the present problem, it is very unlikely that the common folks on the street will have those solutions. You may have an opinion, who doesn't, and it can look from the outside that the system is rigged, or there's a conspiracy to do you in, but that's a poor man's delusions ( by poor, I mean poor at the thinking level). 

So now, these people are looking at negative interest rates. There are some countries already experimenting with that idea. How it will pan out remains to be seen.

[Jason Harvestdancer]

Well in a way you are alluding to the cause, and to remedy that, you need to go to the elephant in the room, which politics, and that would not please you, and many others. It would require two things:

(1) A fascist, authoritarian government.
(2) That government would be in possession of the perfect economic solution.

So, for a government to do nothing and allow deflation, instead of being activist on the mistaken belief that deflation is always bad, we need an all powerful government in order to do that nothing.

Problem with (1) is that people love their freedom. If anything, they want more, not less freedom.

Although I tend to agree with Mencken about how much people love freedom, those who love it would rather have the government that stands back and does nothing.  Which means deflation.

Problem with (2) is that there is no such thing as a perfect theory that would deliver the perfect solution. The theory we have now is better than in Adam Smith's times, better than in Keynes' times, but it is still a work in progress.

How many times does it have to fail before people notice that it is failing?  We had the stagflation of the 1970s, the collapse was only averted by Paul Volker who recognized that inflation was a threat that had to be defeated.  We had a breathing spell during the 80's and 90's which was wasted, leading to the collapse of 2001, 2008, and 2016 (all one collapse made worse by postponing the needed fixes).

So now, these people are looking at negative interest rates. There are some countries already experimenting with that idea. How it will pan out remains to be seen.

Which will be a disaster.

[SGOS]

Quote from: josephpalazzo

So now, these people are looking at negative interest rates. There are some countries already experimenting with that idea. How it will pan out remains to be seen.

Quote from: Jason Harvest Dancer
Which will be a disaster.

Everyone knows how damaging bubbles can be, and we hate them in hindsight.  But people actually love bubbles.  They're heady experiences that give an impression of unlimited wealth that comes fast, and during the bubbles investors become manic.  If the truth be told, for as economically harmful bubbles are, people would love to live in them perpetually.  So our government uses its tool kit to get over the bust and into the next bubble as fast as possible.  People love bubbles.  While those tools are powerful and can be very good, they help shorten the hard times, and then some bright spoon like George Bush decides that if the tools work well during the hard times, they must  be even better during good times.  So he comes into office with a financial surplus and immediately calls for lower taxes and lower interest rates.  And it's not just George Bush.  He just jumps into mind as the most flagrant.  Now the others are following suit.  They all want to preside over the bubbles, and just hope they will be gone during the bust, so people will say there was a great economy under George Bush, or Bozo, or whatever.

[SGOS]

The latest talk (probably instigated by the oil companies) is how damaging low oil prices are.  Really? The example currently given, points to the roughneck sitting on an idle oil rig, followed by a prediction of global depression.  I don't want to see anyone lose their jobs, including the roughnecks that drill for oil.  I don't want to see them lose their jobs anymore than all the people who were squeezed out of jobs when oil prices were so high that companies had to cut back.  You never heard the oil industry complain when people were losing those jobs.

I think one of the names given to this phenomenon is "Supply and Demand" which is a corner stone of our beloved capitalism.  It's a wonderful self regulating device that is fine and dandy unless it doesn't work to your advantage.  Then the propaganda starts up while industrialists whine about not making egregious profit.

Remember a couple years back as oil started to slide?  The industry began a campaign of why this was bad because they would stop exploring, and when the need for oil returned, prices would be even higher.  Once again, it's called supply and demand.  Now they've moved onto other arguments about why prices need to be high, and those arguments make me equally skeptical.  I never heard the oil companies call for caution when the price of oil was wringing our economic necks.

NPR did a piece on this yesterday.  They interviewed an analyst that apparently hadn't been sent by Shell Oil. 

"Yes there can be some negative consequences of drastically low oil prices."

Well, can there be any positive consequences?

"Certainly," and he went on to list them.  "So there is an equilibrium that comes into play where we can weigh the good against the bad."

But is it overall bad or overall good?

"Well, it's hard to say, but the indicators point to low oil prices having more favorable consequences than bad."

OK that's one guy's opinion, but obviously he's not the only one.  Other news outlets seem to be pushing the doom and gloom of cheap oil for the obvious media attention, and the oil companies aren't complaining about that one bit.

I'm not an expert, but we live in a cynical world with a lot of bullshit being pedaled by our leadership.  It's hard to know what the truth is.  I've heard so much bullshit that my default position has become, "Don't believe what they tell you."  Sometimes it's kind of fun to sift through the bullshit, and try to make sense out of it.  But is also gets tiresome.

[josephpalazzo]

Everyone knows how damaging bubbles can be, and we hate them in hindsight.  But people actually love bubbles.  They're heady experiences that give an impression of unlimited wealth that comes fast, and during the bubbles investors become manic.  If the truth be told, for as economically harmful bubbles are, people would love to live in them perpetually.  So our government uses its tool kit to get over the bust and into the next bubble as fast as possible.  People love bubbles.  While those tools are powerful and can be very good, they help shorten the hard times, and then some bright spoon like George Bush decides that if the tools work well during the hard times, they must  be even better during good times.  So he comes into office with a financial surplus and immediately calls for lower taxes and lower interest rates.  And it's not just George Bush.  He just jumps into mind as the most flagrant.  Now the others are following suit.  They all want to preside over the bubbles, and just hope they will be gone during the bust, so people will say there was a great economy under George Bush, or Bozo, or whatever.

Good point about Bush. He did squander the surplus that the Clinton administration had left behind. His decision at the time was political rather than sound economic one. In recession, you accumulate deficits, but when the economy recovers and produces a surplus, it's time to lessen the debt. Bush campaigned in 2000 promising tax cuts with the slogan that "it's your money", and then the two wars and an expensive drug program without raising taxes, another blunder - such programs must be accompanied by tax increases. The disastrous consequence of these two blunders was when the country went into recession in 2008,  the country was plunged into a much greater debt than if Bush had reduced it after his election in 2000.

BTW, the cycle of bust and boom is inevitable in human activities. You can trace these cycles all the way to the Roman empire, and probably existed even before. No country, or empire in the past, can really control these. It's like an asteroid, the size of the moon, moving at 100,000 miles/hr. You can't control that, just maybe you can deflect just enough so it won't crash on our planet. The economy is such a beast. We can accelerate or decelerate its activities, but only slightly. And timing is of great importance. Why economists keep track of a multitude of indicators - none of them are extremely precise, but together they often give forewarning signs. And then people elect politicians who are in it for their own interests and their buddies, and like Bush and his ilk, can cause some serious damage.

[josephpalazzo]

So, for a government to do nothing and allow deflation, instead of being activist on the mistaken belief that deflation is always bad, we need an all powerful government in order to do that nothing.

The option of doing nothing is always there. But lets look what would have happened if Bush, at the end of his mandate, and Obama, at the beginning of his, both had said, "Lets do nothing. We're going to let the economy crash. Let the banks go bankrupt, let GM go bankrupt, let AIG go bankrupt" and so on. You would have had  millions of people out of work, millions of people losing their saving accounts, millions of people losing their money they invested in their pension funds. You would have the states going under with massive deficits that would have required to lay off thousands of policemen, firefighters, teachers, civil servants in just about every state from coast to coast, with thousands of firm who get government contracts out in the cold, laying off more people. Farmers would go bankrupt as no one would have the money to buy their food and so you would have rampant famine, and the crime rate would be shooting through the roof. If you think this is a solution, I can think of  millions of people who will disagree with you.

[Baruch]

Sometimes there is no good answer.  This often happens in political-economics.  Japan was one the first huge bubble of the post-gold era.  They benefited more from Nixon going off the gold standard, initially, than anyone else.  They had incredible levels of personal saving too.  Now with the bubble, partly real estate just like elsewhere, they have been in deflation for 25 years ... and all their personal savings are gone too, put into Japanese government bonds.  Those will pay eventually, just like the ones from the Weimar Republic.  Pretty much everyone since the 90s have imitated the Japanese miracle/nightmare.  Big bubble, partly enhanced thru independent money exchange rates (see China) ... followed by deflation.  What do you think will happen in China, if they had the 25 - 50% youth unemployment rate of Europe?

[Jason Harvestdancer]

There was no Clinton surplus.  The national debt went up every year under Clinton.  There was a tiny deficit.  It was comparatively smaller than anything that had been seen for decades, so much so that even though he had nothing to do with it he should still get credit for such a tremendous achievement.

Do not diminish what his actual achievement by exaggerating it into falsehood.

As for a government doing nothing, I cannot imagine why even the most deluded of people would mention Bush Jr. in that context.  Bailout Bush, whose final year he doubled his deficit and enabled Obama to claim that his deficits were half of those of Bush.  They were half of the last year of Bush, equal to the previous years of Bush.  Neither Bush nor Obama took a "hands off" approach to the recession of 2008, and the recession of 2016 is the result of their failing to take a "hands off" approach.  Nobody can be so deluded as to think Bush and Obama stood by and did nothing.  Nobody.  Not even  you Joe.  Not even you are that deluded.

[Baruch]

But ... but ... the Bush war budget was ... off budget ;-)  We don't have to ever count war expenditures, like the Cold War etc.  My accounting genie told me so!

[josephpalazzo]

There was no Clinton surplus.  The national debt went up every year under Clinton.  There was a tiny deficit.  It was comparatively smaller than anything that had been seen for decades, so much so that even though he had nothing to do with it he should still get credit for such a tremendous achievement.

Do not diminish what his actual achievement by exaggerating it into falsehood.

As for a government doing nothing, I cannot imagine why even the most deluded of people would mention Bush Jr. in that context.  Bailout Bush, whose final year he doubled his deficit and enabled Obama to claim that his deficits were half of those of Bush.  They were half of the last year of Bush, equal to the previous years of Bush.  Neither Bush nor Obama took a "hands off" approach to the recession of 2008, and the recession of 2016 is the result of their failing to take a "hands off" approach.  Nobody can be so deluded as to think Bush and Obama stood by and did nothing.  Nobody.  Not even  you Joe.  Not even you are that deluded.

As usual in the past, you did not understand one thing about my last post. You're a waste. I will ignore your posts from now on.